Former UBS Investment Bank Head Says He Was Negligent on Libor
Jerker Johansson, a former head of UBS AG (UBSN)’s investment bank, said his unawareness of rigging of global interest rates at the biggest Swiss bank was a failure and negligent.
“I would describe it as a failure,” Johansson, who headed the unit from March 2008 until April 2009, told the U.K.’s parliamentary commission on banking standards in London today. He agreed with the description from Andrew Tyrie, the commission’s chairman, that it was also negligent.
Huw Jenkins, who headed the unit before Johansson, and former chief executive officer Marcel Rohner told the hearing that they were “shocked” to hear about the misconduct, for which UBS was fined $1.5 billion by regulators in the U.S., the U.K. and Switzerland in December. Johansson, Jenkins, Rohner and Alexander Wilmot-Sitwell, who co-headed the investment bank for 1 1/2 years until November 2010, all said they learned of the rigging only recently from press reports.
The UBS settlement is the second in the investigation of global interest rates after Barclays Plc (BARC) in June agreed to pay 290 million pounds ($466 million). Regulators have sought information from more than a dozen banks that set rates in the U.S., Europe and Japan to make their finances appear healthier. More than $300 trillion of loans, mortgages, financial products and contracts are linked to Libor.
“I’m deeply sorry that we didn’t spot this,” said Jenkins, CEO of the investment bank until October 2007. “It’s clearly a failing in our systems and controls and in our culture that it wasn’t highlighted through whistle-blowing or other checks and balances in the system.”
Andrea Orcel, CEO of the investment bank, told the commission yesterday that UBS is in the process of rooting out “negative elements” of its corporate culture. About 18 people have lost their jobs and the bank has “taken action” against 40 people in connection to the Libor probe, Andrew Williams, global head of compliance at UBS, said yesterday.
Johansson, who was in charge when UBS conducted an internal investigation into Libor setting, said he wasn’t aware of that probe at the time. He also said he was unaware of press reports highlighting problems.
“With hindsight, I wish I would have looked into it and I accept that,” he said. “But I honestly don’t know how at the time that could have been seen to be one of the most critical issues for the head of the investment bank, not knowing of the irregularities that were taking place in that setting mechanism.”
Johansson and Rohner both stressed that their focus in 2008 to 2009 was on the survival of the bank, which amassed more than $57 billion in writedowns and losses from the subprime crisis and had to be bailed out by the Swiss government. Rohner, the CEO between July 2007 and February 2009, said he accepts “accountability” for what happened under his watch and that he “did the best I could.”
“The level of ignorance of this board seems to be staggering to the point of incredulity,” Tyrie said during the hearing. He also said UBS’s rigging of interest rates and reaping profit from that was “stealing,” a description to which Johansson agreed.
Wilmot-Sitwell, who became president of Europe at Bank of America Corp. after he left UBS last year, said hearings such as this help reinforce the importance of managing a firm’s reputation in the financial industry as a whole.
“We’re only as good as the reputation of our firm,” he said. “We’re only as good as the professionalism and integrity with which we carry out our business. And there is a recognition that there is a massive hill to climb in terms of recovering that reputation, rebuilding the integrity.”
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